EU Commission

Pity the Lithuanians. When assuming the EU rotating presidency next month they will inherit the mother of all regulatory backlogs, especially when it comes to the financial sector. It is an impossible and thankless task, a numbingly complex pile of half-negotiated, often paralysed and always contentious directives and regulations, which the European Commission is still adding to with some gusto.

There are going to be around 25 financial services files for the Lithuanians to shepherd through, either in negotiations between member states, or directly with the European parliament. The poor Lithuanian officials strong-armed to work the files will have to become instant experts. Most of the proposals will require countless long meetings with member state or parliamentary negotiators; some will need ministerial input and some sacrificial political blood.

The demands could dwarf the resources and time available. After March 2014, the parliament essentially shuts shop for European-wide elections, so the Lithuanian presidency, which runs through the end of this year, is pivotal. Some countries only have one or two financial services attachés covering the bulk of files. Getting MEPs together for talks is like herding cats. Getting them to agree is even harder, especially in this pre-election environment. A lot of the initiatives will not make it through; their fate is then in the hands of the next leaders of the EU’s parliament, commission and council. Read more

But even before the talks have formally begun, an altogether different issue has threatened to derail the deal: France’s insistence that the so-called “cultural exception” – the ability of European governments to establish quotas and subsidise their home-grown film and music industries – be completely off the table.

The US has insisted on no “carve outs” before the talks even begin, and EU officials worry that if cultural issues are put aside pre-emptively, it will give the Obama administration fodder to respond in kind with an issue that may be sensitive for a wider number of countries – like agriculture.

In an effort to bridge the gap, the Irish presidency last week circulated a new draft of the mandate that will be given to the European Commission in the trade talks which contains new language assuring France that, while audiovisual issues will not be excluded, there will be clear red lines in the EU’s negotiating position. Brussels Blog got its hands on the 12-page document, which is marked “trade-sensitive” across every page and “EU restricted” at top, and posted it here. Read more

After months of deliberation and some not-so-private sparring with Berlin, the European Commission has pretty much anointed who it wants to be the all-powerful bank bailout and clean-up authority for Europe’s banking union: the European Commission.

This (somewhat predictable) conclusion to its internal policymaking journey is outlined in a paper, seen by the Financial Times, which was distributed to commissioners ahead of their weekly college debate on Wednesday.

There is no sign of Brussels bowing to pressure from Berlin. At the heart of the Commission’s proposed system is a powerful central authority, which has access to a single bailout fund and the clout to shut down a bank even against the wishes of its home state’s government. Brussels wants it operating by 2015.

What about those German concerns that this would breach the EU treaties? Michel Barnier, the EU commissioner responsible for financial issues, concedes in the paper that “only an EU institution” has the legal authority to take important decisions with European effect. Given there is no legal basis to give the European Central Bank this role, the Commission concludes that the only option is to anoint itself as the top resolution authority. Read more

According to Commission officials, this was done intentionally. They wanted reporters and national officials to focus on the recommendations and not the analysis behind them.

But starting this morning, Brussels Blog began combing through the working documents – which are much longer and more detailed than the Commission recommendations – starting with the country many consider the next eurozone bailout candidate: Slovenia. It makes for eye-opening reading. Read more

Bratusek: "Slovenia can on its own without any supervision resolve its problems.”

Amid all the talk that Spain, France and the Netherlands will get waivers next week on tough EU budget rules, allowing them to breach yet again Brussels-mandated deficit ceilings, there are growing signals that one country may not get let off: Slovenia.

Although Slovenia has budget deficit problems similar to its western European counterparts, Brussels’ real concern is about its banking sector, which needs another infusion of taxpayer money to return it to health as non-performing loans continue to rise. Questions about the stability of its three largest banks, all state owned, has put a target on the small former Yugoslav republic as potentially the next eurozone country to need a bailout.

As a result, Slovenia’s demarche from EU economics chief Olli Rehn on Wednesday is likely to come from a place outside the eurozone’s budget deficit rules: new post-crisis enforcement powers Rehn has never used before, the awkwardly named “excessive imbalance procedure”. This authority allows the European Commission to poke around more deeply into a eurozone country’s entire economy – not just government fiscal policy – and demand reforms under threat of swingeing fines.

Alenka Bratusek, Slovenia’s recently-minted prime minister, isn’t too pleased with the prospect of being the first eurozone country to be subject to the EIP. In a meeting with a small group of reporters after Wednesday’s EU summit, Bratusek said officials in Brussels seem to think an EIP citation would help her. She says it won’t. Read more

The latest wrinkle in the affair – in which a close friend of Dalli’s has been accused of soliciting a €60m bribe on Dalli’s behalf – was sparked by Malta Today, the island’s weekly newspaper, which obtained the confidential report on the Dalli investigation conducted by Olaf, the EU’s anti-fraud office, and posted it on its website.

Although the report, which Commission officials confirm is authentic, says Olaf found “no conclusive evidence” of Dalli’s direct participation “as instigator or as mastermind” of the bribery scheme, it is full of ill-timed phone calls and secret meetings between Dalli and Silvio Zammit, his friend and accused bribe solicitor – enough, Olaf found, to conclude he may have violated the code of conduct for European commissioners:

[T]here are a number of unambiguous and converging circumstantial pieces of evidence gathered in the course of the investigation indicating that Commissioner John Dalli was indeed aware of the machinations of Mr Silvio Zammit and the fact that he was using his name and position to gain financial advantages.

Rehn: critics of Cyprus bailout are "comparing apples with pears and coming up with oranges."

During a debate in the European Parliament this morning, Olli Rehn, the European Commission’s economic chief, got roughed up by MEPs lambasting the handling of the €10bn Cypriot bailout by the so-called “troika” of international lenders, of which the Commission is a member.

Jean-Paul Gauzés, the French conservative who led the debate for centre-right parties, called it “disastrous”; his centre-left counterpart, Austrian Hannes Swoboda, dubbed it “neo-colonial” and called on Rehn to disband the troika altogether.

A month before this famous weekend, €17bn was necessary in order to render Cypriot debt sustainable. Now we found at last week it’s €23bn. Just a slight mistake, a comma here or there. Those who carry out the forecasts and estimates for you, are they incompetent…or was it: well, we’ll play around with the figures to make sure reality looks better than it really is?

Reding, far left, and Orbán, second from right, during a 2011 Commission meeting in Budapest.

For Viviane Reding, it appears that any opportunity to step into a hornet’s nest is a good one. This time around, the media-savvy EU justice commissioner has seriously upset the Hungarian government after she questioned the independence of the judiciary in the EU member state.

Budapest didn’t appreciate Reding’s remarks, prompting a tart letter from Tibor Navracsics, Hungary’s deputy prime minister in charge of justice affairs, which called her assertions “outrageous and absolutely unacceptable” and requesting she “kindly refrain from making public statements that lack sufficient grounds as well as general benevolence”.

Both Reding’s remarks and the full text of Navracsics’ letter after the jump… Read more

Rehn's remarks in London last month appear to be the crux of the dispute with Krugman.

Just when you thought the war of words between Nobel prize-winning economist Paul Krugman and European Commission economic chief Olli Rehn had died down, the normally level-headed Finn has hit back at the Princeton academic in an interview with his home country’s largest newspaper, Helsingin Sanomat.

In the interview, Rehn in essence accuses Krugman of lying, insisting the economist criticised him for things he never actually said. “Krugman put words in my mouth that would be termed in the Finnish parliament a ‘modified truth’,” Rehn said in the interview. The newspaper helpfully notes that “modified truth” is the Finnish parliament’s polite terminology for lying.

Rehn also takes a little dig at Krugman’s use of Monty Python to defend himself. After a deluge of attacks from European Commission officials last week, Krugman noted he never made personal attacks on Rehn – only on his policies – writing: “I never asserted that Mr Rehn’s mother was a hamster and his father smelt of elderberries.”

Rehn during last month's presentation of the Commission's winter economic forecasts.

Following yesterday’s barrage from the European Commission, Princeton economist Paul Krugman today ratcheted up his criticism of the way policy is made in Brussels, arguing that the attacks demonstrate EU officials are more “focused on defending their dignity from sharp-tongued economists” than on getting economic policy right.

What you would never grasp from those outraged tweets is that all my criticisms have been substantive. I never asserted that Mr. Rehn’s mother was a hamster and his father smelt of elderberries; I pointed out that he has been promising good results from austerity for years, without changing his rhetoric a bit despite ever-rising unemployment, and that his response to studies suggesting larger adverse effects from austerity than he and his colleagues had allowed for was to complain that such studies undermine confidence.

Nobel prize-winning economist Paul Krugman, during a visit to Brussels in 2009.

Nobel prize-winning economist Paul Krugman has in recent weeks emerged as something of a bête noir for EU economic chief Olli Rehn, singling out the understated Finn as the symbol of the austerity-led eurozone crisis response that Krugman blames for exacerbating Europe’s economic recession.

Last week, after “browsing through the collected speeches of Olli Rehn”, who he declares “the face of denialism when it comes to the effects of austerity”, he criticised the European Commission vice president for arguing that budgetary tightening is the reason for the recent eurozone market calm, when Krugman believes it was more European Central Bank action.

That followed a particularly nasty attack a few days earlier at what Krugman labelled a “Rehn of Terror”, saying that Rehn’s repeated predictions that economic growth was returning was misleading – and taking Rehn to task for a letter to EU finance ministers in which he said the recent academic debate over austerity and growth “has not been helpful”. Read more

The EU clampdown on bankers’ bonuses is nigh. The final talks (or so diplomats hope) have begun and the room is booked until midnight. The frantic politicking earlier today certainly indicates the deal is close. This blog includes some of the latest political intelligence and a few tentative predictions. But be warned: the Brussels blog would not wager its bonus on the outcome.

1) Britain is looking isolated. It is a complex picture, but the UK is running short of allies, especially on the terms of the cap on variable-fixed pay. Most member states are happy to compromise with the European parliament, which is leading the bonus charge. Berlin is showing no appetite for running to London’s rescue. Even Sweden, the UK’s main friend on financial issues, was relatively silent at a meeting yesterday. The Netherlands said it could even accept a tougher crackdown. Ireland want a deal this evening. Read more

There is never a good time for a food chain scandal in which people across a continent are suddenly informed that what they thought was beef lasagne was actually horsemeat of unknown provenance.

But there is an added wrinkle of awkwardness to the EU’s horsemeat scandal, since it coincides with the launch of free-trade negotiations with the US in which food safety standards will be central.

The EU-US effort to forge a trans-Atlantic free-trade agreement was announced with great fanfare on Wednesday afternoon in Brussels by José Manuel Barroso, the European commission president, and Karel De Gucht, the bloc’s trade commissioner. The press conference was the culmination of more than a year of diplomatic spadework between the two sides and decades of dreaming by free-traders, business groups and Atlanticists. Read more

It’s hard enough to get 27 member states to agree unanimously on a seven-year, €1,000bn budget – as anyone following the latest EU summit wrestling match can attest. But completing an EU budget deal requires one more thing: the consent of the European parliament.

Martin Schulz, the German social democrat and parliament president, reminded EU leaders and the Brussels press pack of this fact on Thursday evening. In a mildly foreboding press conference, Schulz re-stated his threat that leaders should be prepared for MEPs to block any budget proposal that strays too far from the €1,033bn proposal submitted more than a year ago by the European commission, the EU’s executive arm.

“Yes, we are prepared to make savings, but we are not prepared to have the European Union budget simply amputated,” he said.

Schulz declined to say whether the latest €960bn proposal being considered by Herman Van Rompuy, the European council president, crossed the line from extreme weight loss to amputation. But he was clearly displeased. Read more

The big question entering Thursday’s summit is whether Herman Van Rompuy, the European council president, can find the right balance between the UK’s demands for an austere long-term budget and France and Italy’s calls for a more robust one. The more Van Rompuy stretches toward the Brits and fellow budget hawks by reducing his proposal, the more those on the other side of the debate pull back. Eventually, the whole thing could snap.

But on the eve of the big meeting, Van Rompuy may have found a clever way to give his budget more elasticity: By increasing the gap between budget commitments and payments. Read more

The situation is worse if you look at staff by nationality, especially for longstanding EU members. A meagre 23 per cent of Dutch Commission officials are female, 26 per cent of Belgians, 29 per cent of Brits and 31 per cent of Germans. In the top three civil servant ranks of the Commission, the Dutch ratio of men to women is an extraordinary 31:1.

No doubt the Commission want to see a better gender mix. But it seems the effort to improve the situation is generating some imbalances of its own. Read more

As we note in today’s dead-tree edition of the FT, the European Commission is out with its latest assessment of Portugal’s €78bn bailout. But buried in the report is a two-page box that raises the intriguing question of whether the bailout is actually bigger than leaders have disclosed.

Why the sudden increase? About €1.8bn of the rise is pretty straight forward. The International Monetary Fund, which is responsible for one-third of the total bailout funding, doesn’t pay its bailout aid in euros. Instead, it uses something called Special Drawing Rights, or SDRs, which have a value all of their own.

Because an SDR’s value fluctuates based on a weighted average of four currencies – the euro, the US dollar, the British pound and the Japanese yen – the 23.7bn in SDRs that was worth €26bn when the Portuguese bailout was agreed last year is now worth about €27.8bn, meaning Lisbon gets more cash just because of the currency markets.

When José Manuel Barroso, the European Commission president, unveiled his blueprint for the future of the eurozone last week, aides acknowledged it contained some blue-sky ideas that were meant to provoke debate as much as set firm policies.

But EU presidents and prime ministers may be asked to endorse some of its more controversial ideas if a leaked copy of the communiqué for next week’s EU summit is any indication – including a plan to have all eurozone countries sign “contractual” agreements with Brussels akin to the detailed reform plans currently required only of bailout countries. We’ve posted a copy of the draft, dated Monday, here.

The idea of the Brussels contracts was originally advocated by the summit’s chair, European Council president Herman Van Rompuy, ahead of October’s gathering. But in the end, summiteers only agreed that such a plan should be “explored”. Read more

He is British to boot and as close as it comes to a Brussels celebrity, so we thought it would be worth publishing our entire Q&A since he has some strong views about Britain’s role in the EU. Note the questions were partly intended to provoke; Faull characteristically kept his cool.

The EU’s financial services policy and legislation are for the whole single market, except for specific measures for the banking union being developed for the eurozone and volunteers among other EU countries. No banking union measures will discriminate against non-participating member states. The EU treaties are binding on all members and do not allow discrimination on grounds of location of business within the EU. What happens “naturally” as markets develop is another story. London has to compete!

2. Are there any genuine UK safeguards against the power of the banking union that would not fragment the single market? What are the dangers if the UK is not realistic in what it asks for?Read more

Even before the European Court of Auditors released its annual review of EU spending on Tuesday, negotiations over the bloc’s next long-term budget had already turned tense.

A group of wealthy nations, led by theUK, are demanding more budgetary discipline and tighter controls on EU spending. Facing off against them are the poorer member states, led byPoland, which tend to benefit disproportionately from EU funding and are determined to keep the money flowing.

The auditors report is likely to give fresh ammunition to the first camp, while putting the second on the defensive. It found that there were “material errors” in 3.9 per cent of the bloc’s €129.4bn in spending last year – meaning more than €5bn was paid to those who should not have received it. The error rate was up from 3.7 per cent in 2010 and 3.3 per cent in 2009.

The worst offenders were the agriculture payments for rural development, where the error rate was 7.7 per cent, and the cohesion funds used for energy and transport projects, where the rate was 6 per cent, according to the report. Read more

The authors

Peter Spiegel is the FT's Brussels bureau chief. He returned to the FT in August 2010 after spending five years covering foreign policy and national security issues from Washington for the Wall Street Journal and the Los Angeles Times, focusing on the wars in Iraq and Afghanistan. He first joined the FT in 1999 covering business regulation and corporate crime in its Washington bureau, before spending four years covering military affairs and the defence industry in London and Washington.

Alex Barker is EU correspondent, covering the single market, financial regulation and competition. He was formerly an FT political correspondent in the UK and joined the FT in 2005.

Duncan Robinson is the FT's Brussels correspondent, covering internet and telecommunications regulation, justice, employment and migration as well as Belgium, the Netherlands and Luxembourg. He joined the FT from the New Statesman in 2011